The Ultimate IRA Test ;)

by J. Money on Monday, July 25, 2011

Okay, so you remember how I got all my 401(k) money the other week, and then I rolled it all over into an IRA account? To get it 100% away from my ex-employer? Well, that one account has now turned into THREE accounts. Which has then turned into the new “Let’s see which account wins” IRA game! Haha… Awwww yeahhhhhh! Time for a little action, baby!

You knew I couldn’t do anything simple and boring right? That would be too easy ;) Plus, I really don’t have an inkling as to *which* method really IS the best, so this is the perfect way to test the waters and then re-evaluate once a little time has gone by.

Here’s the deal. I’m splitting up all $180,000 into THREE accounts – all structured differently – and then at the end of 6 months we’re gonna see which performed the BEST. Or maybe I’ll wait an entire year, I don’t know yet. But what I DO know is that this will be the best way for me to see how different systems work, and which better suits my needs.

Here are how the 3 new IRA accounts will work (btw, this now marks #17 and #18 of my total accounts at USAA. That HAS to be the record now, right? Can anyone over there verify, USAA? Haha… I want my prize!):

Traditional IRA @ $60,000 – NOT Managed. This one is just pure mutual funds in a brokerage account, set up by me but offered guidance from USAA. I tell them where my risk lies with all this (I’m as “aggressive” as they get), and they tell me what sort of funds they advise for me to follow suit. I can accept it, or choose my own, but either way I have to physically do it and then watch for it and account for everything. And after some thought, I’ve decided to follow their guidance BUT I’m not gonna touch it once it’s all invested. I’m gonna leave all the funds be for the 6 months or whatever, and then see where it lines up with the others. Mainly because that’s how I normally did my $180,000 invested in the old 401(k) anyways. I just set it, and then left it alone for long periods of time while I made deposits.

Traditional IRA @ $60,000 – USAA Managed, only USAA funds. One of the other options available was to have the advisers over at USAA manage all my money FOR me. This one REALLY stood out, and grabbed my attention since it would mean I could not only be hands off, BUT someone else would move things around for me and re-balance them when needed. I really liked this option, but it would a) cost me around .40% in fees I believe (can’t remember off hand), and b) still doesn’t mean they’d be BETTER at it than I would. They probably would, cuz I really don’t know all too much about it all, but it’s def. not guaranteed. And this route also means I can only invest the money in USAA mutual funds and ETFs, etc. Which is def. limited. But how do I know it’s not the best route? (I don’t – which is why we’re doing this test :))

Traditional IRA @ $60,000 – USAA Managed, ALL funds. This account is pretty much the same as the one above, except for it costing more (.70% I think?) and it opens up the pool of funds to invest in. Some are still USAA, but the others can be anything that any other brokerage account could invest in. So basically this allows the money managers to invest in anything at all they feel would be good based on my same risk factors. Which, again, is “aggressive.” Cuz I’m still so young ;)

So that’s the plan for the next 6-12 months. I’m gonna let all accounts run its course and see how they line up throughout the months. And since everything’s divided up evenly, it should be super easy to follow and track :)

Will the account that costs me NOTHING win in the end? (#1) Or are the money managers that much better, and earn me a ton more even WITH their fees I have to pay quarterly? (which comes to around $140 to $200 every three months if I recall correctly – not *too* much if they’re making me bank the whole time! I’d gladly pay lots and lots of money, if it means MAKING lots and lots more over time – no doubt about it.)

Only time will tell, but I’m pretty excited about it. It’s like an adult’s playground over here, and I’m just grinning ear to ear :) What do you guys think about all this? Am I an idiot? Would YOU do it? It’s kind scary for the main fact we’re playing with $180,000!!! (yikes), but everything factored in I can’t foresee anything horrible happening as a result here. It’s all being invested safely and securely – it’s just my indecisiveness and curiosity that’s really the variables here. Guess we’ll find out soon enough!

This is cool, I’ve wondered the same thing about managed accounts. I get so protective when it comes to finances that I view most people that want to “work” with my money as used car salesmen. I was thinking of doing this with a brokerage and ask them where they would invest my money, then compare it to my actual gains/losses at the end of x amount of time and if they win then I will transfer a percentage to that brokerage house. Now that I think about it, i should probably do this with several brokerage houses every few years as an additional form of re-balancing and diversification.

Good day, J$. Do you really want me to answer your question? Yep, you are! But I’ll do the same anytime ’cause it looks like fun. I am betting on the ‘organic’ account – given enough time this one will come top.

I read recently (in an academic paper, but I can’t cite as I read about 50 in a week) that over the long term, managed accounts never out-perform indexes, because it’s so incredibly difficult to even match the performance of the major indexes.

I -had- a small IRA with USAA, but it was too small to do anything with, and I had to break into it when I needed emergency dental work. Now I think there’s a lone 10 dollars just sitting in there waiting for me to start contributing again. I’m really interested to see how this turns out, because I never really understood how everything worked, except in the vaguest sense. Good luck!

This is a great idea, and I’m nearly as excited as you are to see how it turns out! I tried to do something similar with my retirement accounts (3 types of accounts at Schwab), but I don’t have as much to play around with, so I haven’t been able to set up an equal experiment like this.

Fun J, but please do keep your own long term goals primary….none of us want you jeopardizing your future for our entertainment, or even our learning :-)

Also, you do know that 6 mos is a blip on the radar….love to see how it does over the longer term. I’ve always been interested in doing something like this. I tend to be an index girl, and often wonder (and get asked by clients – Are managed accounts really worth the add’l cost? Look forward to annual updates. Good luck!

I think this will be a lot of fun but might frustrate your money managers. It’s hard for them to develop an appropriately balanced portfolio to meet your goals when you’ve split the money three ways and have potentially three different strategies.

I’m looking forward to seeing the results as well! You just inspired me to finally move the Roth IRA I’ve been doing nothing with at Merrill Lynch (worst website ever, could not figure out how to invest any of the money) over to my USAA account. Hopefully I’ll have more success over there and will start making monthly contributions once I know it’s actually being invested!

6 months is hardly a credible period of time to evaluate a money manager. If the managed funds do happen to beat the unmanaged (both before and after fees), please don’t decide that you should always be in managed funds. Re-evaluate it again after more time. Managed funds can win in the short-term, but have a tougher time in the long-term.

Remember, you can’t control your market returns, but you CAN control your fees and expenses that you pay.

It is rare that a bank will do better than a brokerage firm in regards to investing. Use USAA for banking but use Vanguard for investing please. How about making a 4th account with the same amount in Vanguard and see how that does, I think you will be surprised.

It’s totally an interesting experiment; I’ve been wanting to do the same kind of thing on my blog. It just wouldn’t be as intriguing w/ my tiny, itty-bitty balances. ;-) It’s a tricky situation; just don’t forget that short-term losses don’t always mean long-term losses when there’s so much time until retirement. Duh, right? If you do keep them this way for a long period, it would really make for a great (very spaced) series. Just an idea. :-) Good luck.

Interesting experiment, although you could prob test it out without putting using $180k of your money! Oh well, I guess it makes the stakes a little bit higher and the experiment more exciting. I’m curious to see how it turns out.

I’m a little unclear here on your not managed option. It sounds like USAA isn’t managing them but you are still contemplating investing in mutual funds that are ultimately managed, just picking them yourself. As a number of folks mentioned up thread, there’s a lot of good research to show that index funds outperform the large majority of managed funds. Will you invest that not managed fund in indexed funds?

After reading through all these comments now, I think I’ll keep them for at least 12 months as-is unless something bonkers is going on, and then consider moving a little around. I’m also secretly hopeing #3 wins now only so I can not have to do anythin ;) And then #1 is my second choice. But either way, you can bet your sweet ass I’ll be doing constant reviews and updates on which is winning out!

I’m excited!!!

@Matt – Yeah, I always feel like I’m gonna get duped in some regard or another too. But then when I sit back and really consider my options (doing it myself, or having others who are *supposed* to know what they’re doing), I don’t feel *as* bad paying them money to help me. As long as I’m making more money in return :) I figured I should just give it a shot for once in my life and see what comes of it. Maybe there will be an extreme difference over time? As long as you’re willing to lose a little or test, I think it’s worth it. And if you end up trying it, be sure to keep us in the loop! We can all run reports at the same time and compare ;)
@Kellee Johnson – Haha, it kinda doesn’t feel like my money either but I have to remind myself it IS!!! :)
@Niki – Thanks! Figured either way I win and lose at the same time ;)
@Boglehead – Hey, thanks! I’ve always heard of Blogleheads, just never taken the time to look into much. I’m adding these links to my “review later” list :) Always enjoy learning!
@Maria Nedeva – I’m kinda thinking, and hoping, that one beats the rest too. But it would still mean I need to manage it and pay attention as the years go by, and I’m not good at that. So actually, I change my mind (haha…) – I want the *managed* ones to win out so I can make more money and know people are watching it for me!! :)
@Becca – Yeah, could be true, who knows? I think all of this is in theory anyways, we just tweak and go w/ what we think is the best at all times :)
@Miriam – You should ask them if they can manage it for you :) haha… that would be hilarious.
@Boglehead – Stats Are Sexy ;)
@Alexis – Thanks! Yeah, I think the minimum at USAA is $50,000 per account. And my 401(k) money is the only amounts I have that went over that limit – so now luckily I can test it out!! Even though I really wasn’t even thinking that way when I opened up the first one. It was the rep that asked me if I wanted to test it since I was unsure :) She said go 50/50, but then when she asked me about USAA-only funds, or ALL funds, I got stuck again and just made it 33/33/33 – haha… it’ll be fun for all of us now :)
@Chris H – Yup! For sure. I’d never do anything I wasn’t mostly comfortable with, whether I have a blog or not. You guys just make it easier for me to take that last step and just DO IT ;) You’re right 6 months may not be a fair amount of time either – I’m thinking of at least going 12 months, unless I see some f’d up patterns going on. The nice part is I can xfer money in and out as I please, even though I usually don’t like doing it.
@No Debt MBA – Haha, true. Though to my credit all of the strategies are pretty much the same — “Aggressive.” The breakdown of %s of stocks vs bonds vs everything else is roughly the same – it’s just the funds and stocks that are chosen that are different at least from initial look. I’m still waiting for everything to hit 100% so I can see exactly where my money is at all times. But my plan of attack is the same across all accounts :)
@Brian – You may be right! Each has its own pros and cons.
@SMB – Haha, good!!! Mine came out of Merrill Lynch too ;) I used a different company to do all the trading w/, etc, but it all lied there. I *love* USAA’s interface so I think you’ll enjoy it too. And they’ll help you out every time you call them! It’s amazing! :)
@Josh D – All good points for sure, thanks man. I think you’re right, and I think I’ll at least give it 12 months before making any moves… or maybe I’ll enjoy the game soo much I’ll just keep letting it run and see how it changes over time ;) as long as they’re all going UP, of course.
@Ginger – That’s a good idea :) I wish I had another $60k though! haha… to be honest, I love the convenience of having all my accounts under one roof to really move everything out again unless the difference is drastic. And plus, couldn’t I invest in vanguard funds from USAA’s account if I wanted to? I think I may be able to do that?
@Crystal – Thanks!
@Jen @ Master the Art of Saving – Yup! After reading all these responses, I think that’s a good way to move forward. I wouldn’t mind having a check in every 6 months to see who’s in the lead, and how things have changed over time – that would be fun! Esp for blogging :)
@Jeffrey Trull – Haha, true, but then where would I stick this $180K? That’s the reason for the test – I don’t know what to do with it, and then the lightbulb went off and this is what I came up with ;)
@Jenna, Adaptu Community Manager – I don’t think it is now :( Just got word someone had 25 accounts!! And that was w/out his kids and all theirs! Haha… I have a ways to go… booo….
@kdice – Sorry for the confusion. Yeah, most of my money in all 3 situations will be in mutual funds, but only that 1st one I’ll be actively buying and selling, etc. The others USAA will do it for me. I’ll take a look once everything has settled and is in my accounts finally, but I think some of the funds ARE index funds. Just a % of it though – not the entire bucket. They’re all a mixture of sorts :) Even the ones I’m buying in my non-USAA managed account.
@WR – Thanks!! Means a lot coming from you :) I’m pretty damn excited about it.

If we could provide the cheesy game show music, we totally would! Hmm…maybe THAT could be your prize for having so many accounts with us? LOL We’re dying to know how this works out and will definitely keep an eye out for your updates. As always, thanks for your membership! -Analisa

@Ashley @ Money Talks – Me too! So far #1 IS leading ;) Haha…
@USAA – You know it!! Love what y’all have been about for years — always proud to say I’m a USAA member! (and I found out I’ve been beat for the record…. by a lot! boooo….)

@kirazona – I don’t know what the “official” record is or anything, or IF there even is one, but I heard someone has 25+ and that’s without all of his kids’ accounts @ USAA! Haha… Gonna take me a while to beat that one ;)
@Joseph – Yeah, it brings me an ounce of excitement every morning! Haha…
@I’m not a Spammer – tl;dr: right back atcha

Hey… I just wanted to let ya know that I have an Ira, mutual funds, all my investments with USAA and they are managed by the company.. I’ve made tons of money so the fees don’t even matter to me. I’ve had them for three years now and I can go online and see when they buy and sell not to mention I love my financial adviser who I can call if I have questions or need to make changes. I have them aggresively invested since I too am young but want to make the most money possible. Hope this eases your mind a lil… ;)

@Julia – Wowww you TOTALLY have me beat!! That’s impressive! :)
@Rebecca – Yes, I like hearing that for sure! That is great :) And I hope I find my managed ones work well too – maybe I’ll even get lucky enough to have your same manager? I know they’re managed by a team of people, but ya never know… and smart on being aggressive too – that’s def. where I’m staying. Thanks for sharing!

We’ve got plenty of funds outside of the IRAs that are hardcore conservative ;) Like cash, haha… but honestly, all these “aggressive” funds still have X% in bonds/cash/etc too. Just a bulk of it going to stocks and other mutual funds.

My other projects

Disclaimer

I, J. Money, only claim the thoughts from my head. I am not a banker, CPA, money manager or anything else of that sort. Please seek a professional for any "real" advice. More info: privacy & disclosure page

Budgets Are Sexy has been lovingly prepared by me, J. Money. While this blog seems random at times, our main goal here is simple: To keep personal finance fun. This stuff isn't just for old people - it's for ALL people. So whether you came to learn about saving, investing, growing your net worth, budgeting, early retirement, or anything else relating to money, I give you a hearty pat on the back for being here right now.

If you like what you see today, be sure to sign up and get these posts emailed to you daily. It's like a personal note from me every single day! ;)